FCNCA Financial Analysis

Analysis Date: 1/27/2025

Business Model

First Citizens BancShares generates revenue primarily through net interest income, which is the difference between interest income earned on assets like loans and investment securities, and interest expense paid on liabilities like deposits and borrowings. They also generate noninterest income from various sources including rental income on operating lease equipment (primarily railcars), lending-related fees, deposit fees, wealth management services, and other service charges.

Revenue Sources

• Net Interest Income: The largest component of revenue, derived from lending and investing activities.
• Rental income on operating lease equipment: Significant contributor to noninterest income, mainly from railcar leasing.
• Fee Income: Includes lending-related fees, deposit fees, client investment fees, wealth management, international fees, factoring commissions, cardholder and merchant services, and insurance commissions.

Income Statement Analysis

• Net interest income decreased by 4.9% QoQ, primarily due to lower yields on loans and interest-earning deposits at banks.
• Noninterest income increased by 7.7% QoQ, driven by increases in other noninterest income and rental income on operating lease equipment.
• Noninterest expense increased by 4.3% QoQ, due to higher other noninterest expense and personnel costs.
• Provision for credit losses increased significantly by 31.4% QoQ.
• Net income increased by 9.5% QoQ, largely influenced by a significant decrease in income tax expense.

Balance Sheet Analysis

• Investment securities increased by 14.0% QoQ, indicating a shift in asset allocation or reinvestment of funds.
• Loans and leases, net increased slightly by 1.1% QoQ, showing moderate loan growth.
• Deposits increased by 2.4% QoQ, indicating positive deposit growth.
• Total Stockholders' Equity decreased by 2.6% QoQ, possibly due to share repurchases.

Capital Allocation

First Citizens BancShares is actively engaged in capital allocation through share repurchases and dividends. In Q4 2024, they repurchased $963 million of Class A common stock and paid common stock dividends. The company has an ongoing share repurchase program authorized up to $3.5 billion. Management emphasizes maintaining strong capital ratios while returning value to shareholders through buybacks and dividends. Reinvestment in the business is implied through continued technology investments and strategic initiatives across different segments.

Management Commentary

Delivered strong return metrics aligned with our forecast despite headwinds from a declining policy rate.

Achieved loan and deposit growth across our operating segments.

Maintained strong capital and liquidity positions with CET1 ratio ending the quarter at 12.99%.

Noninterest expense was higher than anticipated.

Credit quality remained stable, with no emerging problems outside of pressure points previously disclosed.

Overall Sentiment: Generally positive to cautiously optimistic. Management expresses satisfaction with overall performance and strategic execution, highlighting growth and strong capital position, while acknowledging higher-than-expected noninterest expenses and stable but monitored credit quality.

Recommendation

Rating: Hold

Reason for Rating: Based on the analysis, a Hold recommendation is appropriate for FCNCA. While the company shows positive deposit and loan growth and strong capital, there are concerns regarding declining net interest income and increasing noninterest expenses. The significant decrease in income tax expense in Q4 2024 boosted net income, but may not be sustainable. Stable credit quality is a positive factor, but increased provision for credit losses QoQ warrants monitoring. Active share repurchase program supports stock value but also reduced equity. Overall, the financial performance is mixed, suggesting a Hold rating until clearer trends emerge.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 1/27/2025, 9:59:38 AM